Delivering value Delivering commitments. June 2018

Transcription

1 Delivering value Delivering commitments June 2018

2 Disclaimer The information contained in this presentation has been prepared by Ence Energía y Celulosa, S.A. (hereinafter, "Ence"). This presentation includes data relating to future forecasts. Any data included in this presentation which differ from other data based on historical information, including, in a merely expository manner, those which refer to the financial situation of Ence, its business strategy, estimated investments, management plans, and objectives related to future operations, as well as those which include the words "anticipate", "believe", "estimate", "consider", "expect" and other similar expressions, are data related to future situations and therefore have various inherent risks, both known and unknown, and possess an element of uncertainty, which can lead to the situation and results both of Ence and its sector differing significantly from those expressly or implicitly noted in said data relating to future forecasts. The aforementioned data relating to future forecasts are based on numerous assumptions regarding the current and future business strategy of Ence and the environment in which it expects to be situated in the future. There is a series of important factors which could cause the situation and results of Ence to differ significantly from what is expounded in the data relating to future forecasts, including fluctuation in the price of wood pulp or wood, seasonal variations in business, regulatory changes to the electricity sector, fluctuation in exchange rates, financial risks, strikes or other kinds of action carried out by the employees of Ence, competition and environmental risks, as well as any other factors described in the document. The data relating to future forecasts solely refer to the date of this presentation without Ence being under any obligation to update or revise any of said data, any of the expectations of Ence, any modification to the conditions or circumstances on which the related data are based, or any other information or data included in this presentation. The information contained in this document has not been verified by independent experts and, therefore, Ence neither implicitly nor explicitly gives any guarantee on the impartiality, precision, completeness or accuracy of the information, opinions and statements expressed herein. This document does not constitute an offer or invitation to acquire or subscribe to shares, in accordance with the provisions of Royal Legislative Decree 4/2015, of 23 October, approving the consolidated text of the Securities Market Act. Furthermore, this document does not constitute a purchase, sale or swap offer, nor a request for a purchase, sale or swap offer for securities, or a request for any vote or approval in any other jurisdiction.

3 Ence at a Glance Resilient business model, powerful cash flow generation and sustainable growth Leading European eucalyptus pulp (BHKP) producer with 1.1 Mn tons of installed capacity and largest Spanish renewable energy generator with agroforestry biomass (170 Mw) Continued eucalyptus pulp demand growth fueled by tissue consumption mega-trend (6.4% CAGR ) Strong competitive position in Europe: highly efficient facilities, just in time service and differentiated offering Environmental Excellence: Our facilities stand beyond all regulatory standards Solid earnings secured by stable regulation in the biomass Energy business Powerful cash flow generation: 147 Mn normalized Free Cash Flow in FY17 Solid balance sheet and strong liquidity: 0.5 Net Debt / EBITDA at 31March Strategic Plan on track. Growth coming from ongoing pulp capacity expansions, new biomass power plants under construction and M&A in the Energy business Working on a new plan to continue delivering sustainable growth, value, environmental excellence and security beyond 2020 to be announced by yearend 3

4 Supportive shareholder base With a strong entrepreneurial track record Shareholding structure Board of directors As of 31/05/2018 Victor Urrutia Juan Luis Arregui Chairman Oscar Arregui 29.3% Jose Ignacio Comenge Javier Arregui 58.1% 6.3% Pedro Barato Fernando Abril-Martorell 0.6% 5.7% José Guillermo Zubía Luis Lada Mr. Juan Luis Arregui Mr. Victor Urrútia Mr. Jose Ignacio Comenge Treasury Stock Free Float Isabel Tocino Jose Carlos del Álamo Javier Echenique Rosa María García Piñeiro Ignacio de Colmenares CEO & Vice Chairman Juan Luis Arregui, Chairman of the Board, founder of Gamesa and former Vice Chairman of Iberdrola 4

5 Pulp & Energy Two complementary & independent businesses Eucalyptus Pulp Production 2017 EBITDA breakdown Biomass Energy Generation 79% 21% Leading European producer with c. 1.1 Mn tons of installed capacity Cyclical business largely dependent on USD based global pulp prices Based on Ence`s wood supply management expertise Strong operating know how and efficient facilities with c.60 years experience Leverage policy: Maximum 2.5x Net Debt / EBITDA, long term capital market financing and high liquidity Pontevedra Facilities Location Navia Mérida Cordoba Ciudad Real Huelva Jaen Largest operator in Spain with 170 MW of installed capacity Regulated business with high visibility and attractive returns Based on Ence`s agroforestry biomass supply management expertise Strong operating know how and efficient facilities with c.10 years experience Leverage policy: Maximum 5.0x Net Debt / EBITDA, non recourse bank project financing and sufficient liquidity Strong forestry and biomass management to support Pulp and Energy businesses 5

6 Chemical Market Pulp industry 62 million tons in Mn Tons Newsprint: 23 Mnt 422 Mn Tons Packaging Paper and Board 236 Mnt Printing & Writing: 100 Mnt Tissue: 36 Mnt Specialties: 18 Mnt Total Paper & Board consumption Recycled Fiber & Non Wood Pulp: 251 Mnt Mechanical: 29 Mnt Virgin Pulp: 171 Mnt Chemical: 142 Mnt Integrated: 80 Mnt Market: 62 Mnt Fiber Source Pulp Processing Integrated vs. Market Pulp Chemical Market Pulp industry Softwood and other: 28 Mnt 34 Mnt Hardwood Pulp Type Source: RISI Jan 2018; PPPC G-100 Dic 2017 Ence is the leading European hardwood pulp producer with c. 1.1 Mn tons of installed capacity, competing in the global Chemical Market Pulp industry 6

7 Hardwood pulp vs. Softwood pulp Eucalyptus pulp is cheaper to produce than softwood pulp Hardwood pulp (BHKP) Substitutive materials Softwood pulp (BSKP) Most hardwood pulp comes from eucalyptus wood Best suited for paper products with high smoothness, opacity and uniformity (i.e. tissue) Iberian Globulus Forestry yield: m 3 / ha / year Harvesting cycle: years Industrial yield: m 3 / ton of pulp 80% of final paper products allow for different proportions of both pulp types Most softwood pulp comes from pine wood Best suited for paper requiring higher durability and strength (i.e. printing & writing) Nordic Scots Pines Forestry yield: 2 4 m 3 / ha / year Harvesting cycle: years Industrial yield: m 3 / ton of pulp Low production cost High production cost Eucalyptus only grows under very specific climate conditions, usually in warm subtropical regions. More abundant pines are better adapted to cold climates 7

8 Superior demand growth for Eucalyptus pulp Which is leading global market pulp demand growth Last 10 years total market pulp demand evolution Last 10 years hardwood pulp demand evolution Mn tons % CAGR Mn tons Hardwood (BHKP): +3.7% CAGR Eucalyptus pulp (BEKP): +6.4% CAGR Softwood (BSKP): +1.4% CAGR Source: PPPC G-100 Other : -4.6% CAGR 10 5 Other Hardwood (BHKP): -0.8% CAGR Source: PPPC G-100 The more efficient and best suited eucalyptus pulp is gaining market share against other hardwood and softwood pulp, following a demand increase of over 11 Mn tons in the last 10 years 8

9 Fuelled by tissue consumption mega-trend Linked to increasing living standards in developing countries Tissue paper per-capita consumption (kg/year) End global paper market demand growth (CAGR ) 13% of world population 87% -5,1% Newsprint -1,6% P&W 25 Specialties & other 1,6% Packaging 2,7% Tissue 3,5% -6,0% -1,0% 4,0% Source: RISI North Western America Europe Japan Oceania Latam Eastern Europe China 4 Middle East 2 1 0,1 Other Asia Africa India Ence 2017 pulp sales by end paper market P&W 9% Packaging 1% Source: RISI Dec % of Ence pulp sales are oriented to the fastest growing tissue market, which has increased by over 10 Mn tons in the last 10 years Specialties 27% Tissue 63% 9

10 Tight global Market Pulp supply and demand balance Global demand reached 92% of capacity in 2017 North America Demand Supply Western Europe Demand Supply China Demand 2 Supply Mn Tons Softwood pulp (BSKP) Hardwood pulp (BHKP) Source: PPPC G Dec 2017; RISI Jan 2018 South America Demand Supply Rest of the World Demand Supply China, Europe and North America are net importers of hardwood pulp (BHKP) 10

11 New capacity managed by incumbents In a concentrated supply market Softwood pulp (BSKP) global market share Hardwood pulp (BHKP) global market share All other: 35% International Paper: 12% All other: 20% Suzano + Fibria + Klabin: 31% Stora: 4% Illim: 5% Mercer: 5% Koch Ind.: 8% Arauco: 7% Domtar: 7% Metsa: 6% Paper Excellence: 6% Sodra: 5% Mitshubishi: 2% Altri: 3% Ence: 3% Cenibra: 3% UPM: 5% Arauco: 6% APRIL: 8% Eldorado + APP: 10% CMPC: 9% Source: RISI 2017 Source: RISI 2017 Top 10 softwood pulp producers account for 65% of global BSKP market share Top 10 hardwood pulp producers account for 80% of global BHKP market share 11

12 No large capacity increases confirmed in the industry Lead time for new projects close to 3 years Expected Annual Increase for Global Market Hardwood Supply and Demand (Mn t) 1 Mn t ESTIMATED BHKP DEMAND INCREASE CHINA Stricter Environmental Protection Impact OTHER ASIA / AFRICA / OCEANIA / MIDDLE EAST EUROPE NORTH AMERICA LATIN AMERICA ESTIMATED BHKP SUPPLY INCREASE (0.7) 1.3 APP (OKI) FIBRIA (TRES LAGOAS) FIBRIA (ARACRUZ) KLABIN (PUMA) SUZANO (IMPERATRIZ. MUCURI & MARANHAO) ENCE (NAVIA & PONTEVEDRA) METSA (AANEKOSKI) UPM (KYMI) SVETLOGORSK (BELARUS) CMPC (GUAIBA) TAIWAN P&P and RFP (Calhoun) ARAUCO (VALDIVIA) APRIL (KERINCI) APRIL (RIZHAO) OTHER UNEXPECTED CLOSURES / CONVERSIONS Strong global demand growth reinforced by increasing environmental protection in China Higher industry concentration post Suzano - Fibria and APP - Eldorado deals Limited supply from Indonesian pulp mills Ongoing capacity conversions to Dissolving Pulp Recurring unplanned production outages in an industry operating above 90% of its capacity SURPLUS / (DEFICIT) (1.4) (0.6) (2.0) (1.0) (3.0) (2.1) (5.1) Source: ENCE estimates 1. Estimates correspond to the expected increase in supply and demand of market pulp for paper production. It excludes therefore the production of integrated pulp and other pulp grades such as Dissolving Pulp or Fluff 12

13 Increasing pulp prices With a tighter supply and demand balance European Hardwood (BHKP) Pulp Prices ($/t) RISI s Estimates for European Annual Average BHKP ($/t) Q17 2Q17 3Q17 4Q17 1Q18 2Q18e Dec 2017 RISI Estimates May 2018 RISI Estimates 1,195 1, , ene-18 ene-19 ene e 2019e 2020e Ence has announced an additional pulp price increase up to 1,070 $/t for June Low pulp inventories across the value chain Price gap between hardwood and softwood above 120 $/t Increasing pulp price forecast short and long term Widespread global demand growth No large capacity increases confirmed in the industry 13

14 Iberian pulp is the most competitive in Europe Cash Cost: narrowing the gap with Latam and widening it with Nordics Western European Pulp Market: 16 Mn Tons Estimated delivered cash cost for the European pulp market Mn Tons $ / Ton BSKP 7 BHKP 9 Demand Source: RISI, EPIS, Ence Source NORTHERN.EUR (BSKP) NORTHERN.EUR (BHKP) IBERIA (BHKP) LATAM (BHKP) Source: Hawkins Wright (December 2017) Mn Tons 80% of softwood pulp demand could be substituted with hardwood pulp 14

15 Just in time service and differentiated offering Ence key competitive advantages in the Pulp business Just in time service 7 de-commoditized products 50 days & 36 /t High client diversification > 100 customers JIT short shipping deliveries (5-7 days) Smaller coastal vessels De-commoditized products High Porosity Low Fibre Bundles High White Premium Pulp High Stability Low Energy Refining TCF + ECF qualities High Softness High Bulk JIT deliveries and de-commoditized products strengthen Ence's positioning among its diversified client base 15

16 Largest forestry and biomass manager in Spain Strong supply management to support Pulp and Energy businesses Wood annual purchases: 3 Mn tons Biomass annual purchases: 1 Mn tons Wood Certification Biomass Diversification Double-Certified entries in Navia Double-Certified entries in Pontevedra 85% 77% Wood Purchases % Property Owners 48% Small Suppliers 25% Big Suppliers 2018e Avg. Supply Distance Forestry biomass Agricultural biomass Km Diversification to agricultural byproducts multiplies biomass availability and reduces its cost Pontevedra Navia Biomass Sustainability Ence has been a pioneer with its biomass sustainability declaration 16

17 Largest and most efficient biomass player in Spain 170 MW of installed capacity and 55Mn EBITDA target for 2018 MÉRIDA 20 Mw PUERTOLLANO 50 Mw CIUDAD REAL 16 Mw HUELVA 50 Mw CÓRDOBA 27 Mw HUELVA 41 Mw HUELVA 40 Mw JAÉN 16 Mw 17

18 Energy business earnings secured by stable regulation Strengthening the resiliency of Ence s business model Regulated price collar (regulated pool price + Ro) 1 Low exposure to regulated return on investment (Regulated IRR) / Mwh % 6 Mn EBITDA % Average Cap Average Floor Current Ri 2020 Worst Case Scenario Regulated electricity price plus the remuneration for the operation (Ro) to cover all the operating costs of a standard plant Our worst case scenario is an Regulated IRR based on a regulated return of 4.5% from 2020 EBITDA impact of just 6 Mn for our 6 operating plants and new Huelva project (without Regulated IRR) Continued cost cutting initiatives to offset the small effect of a lower Regulated IRR from Includes regulated pool price collar + average remuneration for the operation of our plants (Ro) of 57 /MWh 18

19 Strategic Plan s pending investments Navia & Pontevedra expansions and 2 new biomass power plants Investment Plan ( Mn) 1 Next Steps 54 Pulp Energy Navia Pontevedra Huelva Ciudad Real E 2019E 2020E 20 March 18 30,000 t Pontevedra March 19 40,000 t Pontevedra April 19 80,000 t Navia Dec Mw Huelva Dec Mw Ciudad Real Analyzing further acquisition opportunities to keep on growing the business PULP ENERGY Pulp Business Strategic Plan Summary (at 720 $/t pulp price and 1.25 $ exchange rate) Energy Business Strategic Plan Summary (assuming 2017 electricity price levels) 2018e 2019e 2020e Divestments ( Mn) Net Capex ( Mn) Production sold (000, t) 991 1,040 1,120 Cash cost ( /t) e 2019e 2020e Capex ( Mn) Production sold (MWh) 1,000,000 1,000,000 1,550,000 EBITDA Exp.( Mn) Before further acquisitions in the Energy business 2. After non core forestry assets Divestment Plan 19

20 Forestry Divestment Plan Monetizing 56,500 hectares of non core eucalyptus plantations Monetization of 56,500 Hectares of Eucalyptus Plantations in Southern Spain with a Book Value of 125 Mn High-Yield plantations 24 Months 25,000 h Potential upgrades to irrigated use Months 7,500 h Rest of properties From 36 Months 24,000 h Year 1 Year 2 Year 3 Year 4 Dedicated team for the monetization of this assets 20

21 Attractive shareholder remuneration 50% dividend pay-out policy as from 2017 Annual Accrued Dividends ( Mn) Dividend Policy Mn 1 46 Mn 36 Mn 25 Mn INTERIM (Paid) 30 Mn Dividend Per Share FINAL (Paid 12 th April) 16 Mn 50% Payout 3 Payments First interim dividend agreed upon at the end of the first semester A second one agreed in November A final dividend approved by the AGM Final dividend of /share, equivalent to 16 Mn, paid on 12 th April 1. Includes share buyback program 21

22 Financial Highlights 1Q

23 Strong 1Q 2018 Results Following pulp price increases Group EBITDA ( Mn) Normalized FCF 1 ( Mn) Net Debt Reduction + 54% + 50% -18% Q17 Energy Pulp 1Q18 Pulp business: 80% EBITDA growth Despite higher Cash Cost due to wood & soda price increases Energy business: 18% EBITDA decline Active management of the annual 6,500 hour production limit 55 Mn EBITDA guidance maintained 1Q17 Energy Pulp 1Q18 Strong Normalized Free Cash Flow generation of 27.3 Mn High EBITDA conversion into FCF: 43% including lower factoring for 15 Mn Dec - 17 Mar -18 Energy Pulp 27.5Mn Net debt reduction after 16.5 Mn Strategic Plan Investments Convertible bond accounting Reducing financial leverage to 0.5 x LTM EBITDA 1. FCF before Strategic Plan investments, divestments & dividend payment 23

24 Pulp Business Increasing margins despite higher cash cost Avg. Net Pulp Price ( /t) Pulp Sales Volume (t) Avg. Cash Cost ( /t) % - 5.4% +7.5% , , Q17 1Q18 1Q17 1Q18 1Q17 1Q18 EBITDA ( Mn) 80% EBITDA growth up to 54 Mn % 29.2% net pulp price increase 5.4% decrease in pulp sales volume due to lower stocks % cash cost increase due to wood cost link to pulp price performance, doubling soda prices and lower fixed cost dilution 30 1Q17 1Q18 24

25 Ongoing FX hedging program To mitigate FX volatility on the Pulp Business Dollar/Euro Exchange Rate Evolution Current Hedges 1,4 1,35 1,3 1,25 1,2 1,15 $1.16/ Q2 18: 50% revenues Avg. cap: $ 1.16 Avg. floor: $ 1.08 H2 18: 50% revenues Avg. cap: $ 1.16 Avg. floor: $ ,1 $1.11/ 1, H1 19: 50% revenues Avg. cap: $ 1.26 Avg. floor: $ 1.19 Ence has secured an average cap of $1.16/ for 50% of its dollar exposure until Dec

26 Pulp Business Solid balance sheet and strong liquidity Leverage as of March 2018 ( Mn) Debt Maturity Calendar ( Mn) 250 Mn HY bond Leverage: 0.5 x 160 Mn Convertible bond Mn bilateral loans Mn RCF fully available Gross debt Cash Net debt >2022 Pulp business leverage at 0.5x Net Debt / LTM EBITDA as of March Mn accounted as gross debt and 15 Mn accounted as equity, according to IAS 32 26

27 Pulp business refinancing To save 11 Mn interest payment as from 2019 Old High Yield Bond New Convertible Bond 5.375% Interest Rate 250 Mn Mn Annual Interest Payment 1.25% Interest Rate Conversion Price /share Maturity Date 5 March Mn Accounted as Equity Mn Accounted as Debt Mn Mn High Yield Bond redemption on 1 st June 1. According to IAS 32 27

28 Energy Business Active management of energy production limit Avg. Selling Price ( /MWh) Energy Volume (MWh) Revenues ( Mn) -9.1% +7.8% +1.2% , ,045 1Q17 1Q18 1Q17 1Q18 1Q17 1Q18 18% EBITDA decline 9.1% average selling price reduction 7.8% increase in energy volume sold Increasing contribution from Cordoba 27 Mw plan acquired last August Optimization of the annual 6,500 hour production limit One-off costs related to heavy rains in the quarter 10.7 EBITDA ( Mn) -17.6% Mn EBITDA target for 2018 maintained 1Q17 1Q18 28

29 Energy Business Solid balance sheet and strong liquidity Leverage as of March 2018 ( Mn) Debt Maturity Calendar ( Mn) 147 Mn - Drawn 53 Mn for Huelva 40 MW Undrawn Leverage: 0.6x 20 Mn RCF Fully available Gross debt Cash Net debt >2021 Energy business leverage at 0.6x Net Debt / LTM EBITDA as of March

30 Alternative Performance Measures (APMs) Pg.1 Ence presents its results in accordance with generally accepted accounting principles, specifically IFRS. In addition, its quarterly earnings report provides certain other complementary metrics that are not defined or specified in IFRS and are used by management to track the company's performance. The alternative performance measures (APMs) used in this presentation are defined, reconciled and explained in the corresponding quarterly earnings report publicly available through the investor section of our web page CASH COST The production cost per tonne of pulp produced, or cash cost, is the key measure used by management to measure its efficiency as a pulp maker. Cash cost includes of the expenses incurred to produce pulp: timber, conversion costs, corporate overhead, sales and marketing expenses and logistics costs. It excludes fixed-asset depreciation and forest depletion charges, impairment charges and gains/losses on non-current assets, finance costs/income, income tax and certain operating expenses which management deems to be non-recurring, such as ad-hoc consultancy projects, Ence's long-term remuneration plan, the termination benefits agreed with staff or certain social expenses. As a result, the difference between the average sales price and the cash cost applied to the total sales volume in tonnes yields a figure that is a very close proxy for the EBITDA generated by the Pulp business. EBITDA EBITDA is a measure of operating profit before depreciation, amortization and forest depletion charges, non-current asset impairment charges and gains or losses on non-current assets. It provides an initial approximation of the cash generated by the company's operating activities, before interest and tax payments, and is a measure that is widely used in the capital markets to compare the earnings performances of different companies. NORMALISED FREE CASH FLOW Ence reports normalised free cash flow within the cash flow metrics for each of its two business units in its quarterly earnings report. Normalised FCF is the sum of EBITDA, the change in working capital, maintenance capital expenditure, net interest payments and income tax payments. Normalised free cash flow provides a proxy for the cash generated by the company's operating activities before collection of proceeds from asset sales; this cash represents the amount available for investments other than maintenance capex, for shareholder remuneration and for debt repayment.

31 Alternative Performance Measures (APMs) Pg.2 MAINTENANCE, EFFICIENCY & GROWTH AND ENVIRONMENTAL CAPEX Ence provides the breakdown of its capital expenditure related cash outflows for each of its business units in its quarterly earnings report, distinguishing between maintenance, efficiency & growth and environmental capex. Maintenance capex are recurring investments designed to maintain the capacity and productivity of the company's assets. Efficiency & growth capex, meanwhile, are investments designed to increase these assets' capacity and productivity. Lastly, environmental capex covers investments made to enhance quality standards, occupational health and safety and environmental performance and to prevent contamination. Ence's Business Plan includes a schedule of the amounts it expects to invest annually in efficiency & growth and environmental capex in order to attain the strategic targets set. The disclosure of capex cash flows broken down by area of investment facilitates oversight of execution of the published Business Plan. FREE CASH FLOW Ence reports free cash flow as the sum of its net cash flows from operating activities and its net cash flows from investing activities of its quarterly earnings report. Free cash flow provides information about the cash generated by the Group's operating activities that is left over after its investing activities for the remuneration of shareholders and repayment of debt. NET DEBT The borrowings recognized on the balance sheet, as detailed in its quarterly earnings report, include bonds and other marketable securities, bank borrowings and other financial liabilities. They do not however include the measurement of financial derivatives. Net debt is calculated as the difference between current and non-current borrowings on the liability side of the balance sheet and the sum of cash and cash equivalents and short-term financial investments on the asset side. Net debt provides a proxy for the company's indebtedness and is a metric that is widely used in the capital markets to compare the financial position of different companies.

32 Delivering value Delivering commitments